Is Critical Illness Insurance Worth It? What You Need to Know

Life can change in an instant. A single diagnosis can shift everything, not just emotionally, but financially. That's where critical illness insurance comes in. It's a simple, smart way to help protect your savings and safeguard your financial future when the unexpected happens.

If you’ve ever asked yourself, “Do I need critical illness insurance?” or “Is critical illness insurance worth it?” — here's what you need to know.

What is critical illness insurance?

Critical illness insurance is a type of coverage that provides a lump-sum cash benefit if you're diagnosed with a qualifying serious illness. This differs from traditional health insurance, which reimburses you for medical expenses or hospital visits.

Common illnesses covered include:

• Heart attack
• Stroke
• Cancer
• Major organ transplant
• Kidney failure

Instead of dealing with deductibles and co-pays, critical illness insurance gives you money upfront to use however you need, whether that’s paying your mortgage, covering child care, or traveling for treatment.

Why critical illness insurance matters today

Medical costs in the United States continue to rise.¹ Even if you have health insurance, a serious illness could leave you with huge out-of-pocket expenses. The average out-of-pocket cost for cancer treatment, for example, can run in the tens of thousands of dollars, even with coverage.²

And here's the thing: it's not just the medical bills, critical illness insurance also helps cover:

• Time off work
• Travel for treatment
• Home modifications
• Household help

Why your savings aren't enough during a critical illness

You might think, “I have emergency savings. I'll be fine.” But even a moderate illness can exhaust your bank account quickly. Consider this example:

Jill, a 42-year-old graphic designer, was diagnosed with breast cancer. She had health insurance, but needed months off work for treatment. Between co-pays, out-of-network treatments, and missed income, she faced more than $30,000 in unplanned expenses.

Without income protection or a backup plan, even those who budget carefully can fall behind financially.

How critical illness insurance works

Here's what you can expect when you purchase a policy:

• Premiums: Typically affordable and based on age, health, and coverage amount.
• Policy terms: You choose how much coverage you want. It could range from $10,000 to $50,000 or more.
• Waiting periods: Some policies require a waiting period before coverage kicks in
• Simplified claims: Once you're diagnosed with a covered illness, the payout is issued quickly—no receipts needed to use the money as you see fit.

You can use the lump-sum payout however you want, including to:

• Pay your rent or mortgage
• Cover deductibles and medical bills
• Hire in-home care or childcare
• Take time off work to recover

Key benefits of having critical illness insurance

Here's why adding this coverage to your financial toolkit makes sense:

• Immediate financial help in a crisis
• Some peace of mind for you and your loved ones
• Protection of long-term financial goals (like retirement savings)
• Freedom to focus on recovery, not bills
• Flexibility to spend the benefit however you choose

Who really needs critical illness insurance?

While it's valuable for almost anyone, it's especially helpful for:

• People with a family history of serious illness
• Self-employed professionals or gig workers without employee benefits
• Primary earners supporting a household
• Families with mortgages, loans, or tuition obligations
• Adults in their 30s-50s looking to protect retirement savings

How to choose the right critical illness insurance policy

Here's what to consider when deciding which policy to choose:

• Coverage scope: Are the most common conditions (cancer, stroke, heart attack) included?
• Exclusions: Are pre-existing conditions covered?
• Waiting periods: How soon does coverage start?
• Benefit amount: Will the payout realistically cover your expenses?

Look for policies with easy-to-understand terms and flexible payout options.

Cost vs. benefit: Is critical illness insurance worth the money?

Let's say you pay $25/month for a $20,000 benefit. In five years, you'll have paid $1,500. If you're diagnosed with a covered illness during that time, you'd receive $20,000 tax-free. That's a return of over 13x your investment when you need it most.

Consider this:

• The average lifetime cost of ischemic stroke, including inpatient care, rehabilitation and follow-up care, is estimated at $140,048.³
• Health insurance may cover some costs, but not lost income or everyday bills.

Alternatives to critical illness insurance

If you're exploring your options, consider:

• Disability insurance - Covers income loss if you can't work
• Life insurance with living benefits - Some policies allow you to access funds while alive if seriously ill
• Health savings accounts (HSAs) - Tax-advantaged savings for medical expenses
• Emergency funds - Always smart, but may not go far enough

Make the right call

A critical illness diagnosis can bring enough stress without adding financial strain. Whether you're managing a household, building a career, or planning for retirement, critical illness insurance helps protect your savings and your future.

At Mutual of Omaha, we've been helping families prepare for life's “what-ifs” for over a century. Connect with a Mutual of Omaha financial representative today to find some peace of mind tomorrow.